UK capacity market approved

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AFTER an eight month-long investigation, the European Commission approved Britain’s Capacity Market on 24 October.

“I am pleased to announce that today the European Commission has confirmed its original decision in 2014 to grant State aid approval for the Capacity Market, enabling this vital tool for electricity security of supply to be restored and payments that have been suspended since November 2018 to be made”, Andrea Leadsom, Secretary of State for Business, Energy and Industrial Strategy, said.

“The Government welcomes the Commission’s decision, which enables the Capacity Market to resume its important work as Great Britain’s principal tool for ensuring electricity security of supply and provides confidence that its design is fit for purpose.”

The Capacity Market scheme ensures the nation has enough power supplies during the winter months.

Generators are offered financial incentives for ensuring power plants are kept on standby and are ready to provide back-up electricity when demand is at its peak.

The news comes after the Commission launched an investigation in February this year, following a EU Court’s ruling that led to suspension of the scheme in November 2018.

This was caused by a legal challenge made by Tempus Energy, who argued that the mechanism for securing back-up power during winter months unfairly favoured fossil fuel generators over newer, cleaner technologies, such as DSR services.

As a result, the ECJ ruled the Commission should have opened an ‘in-depth’ investigation to gather more information on certain elements of the scheme. The market was then suspended until further notice.

The Commission received and analysed feedback and comments submitted by 35 interested parties during the investigation, including energy producers, inter-connector operators, demand response operators, trade associations, non-governmental organisations and network operators.

Following their investigation, the Commission said it did not find any evidence that the scheme would put demand response operators or any other capacity providers at a disadvantage with respect to their participation in the scheme.

In particular, the investigation confirmed that the scheme is necessary to guarantee security of electricity supply in Great Britain, is in line with EU energy policy objectives, and does not distort competition in the Single Market.

The Commission did not find any evidence that the scheme would put demand response operators or any other capacity providers at a disadvantage with respect to their participation in the scheme.

In her statement, Ms Leadsom said the decision means the UK will now be able to:

  • Restart the mechanism for making payments to capacity providers, including the c.£1bn of deferred payments that have been suspended because of the standstill period as well as future capacity payments. The vast majority of the back-payments will reach capacity providers in January 2020.
  • Invoice suppliers for the supplier charge relating to the standstill period which will be used to fund the deferred capacity payments. The Government has been engaging with suppliers during the standstill period to ensure they have been setting aside funding to meet what will be a substantial post-standstill invoice.
  • Confirm that the conditional capacity agreements awarded in the replacement T-1 auction, held in July 2019, have become full capacity agreements. This will ensure we have in place all the capacity needed to ensure security of supply this winter.
  • Confirm the three capacity auctions scheduled for early 2020 will take place. These will secure the majority of our capacity needs out to 2023/24.